united states securities and exchange … 7a 8 9 9a 9b: market for the ... 69.6: 217.5: total cash...
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0000103973-05-000084.txt : 200503140000103973-05-000084.hdr.sgml : 2005031420050314121804ACCESSION NUMBER:0000103973-05-000084CONFORMED SUBMISSION TYPE:10-KPUBLIC DOCUMENT COUNT:12CONFORMED PERIOD OF REPORT:20041231FILED AS OF DATE:20050314DATE AS OF CHANGE:20050314
FILER:
COMPANY DATA:COMPANY CONFORMED NAME:VULCAN MATERIALS COCENTRAL INDEX KEY:0000103973STANDARD INDUSTRIAL CLASSIFICATION:MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400]IRS NUMBER:630366371STATE OF INCORPORATION:NJFISCAL YEAR END:1231
FILING VALUES:FORM TYPE:10-KSEC ACT:1934 ActSEC FILE NUMBER:001-04033FILM NUMBER:05677676
BUSINESS ADDRESS:STREET 1:1200 URBAN CENTER DRIVECITY:BIRMINGHAMSTATE:ALZIP:35242BUSINESS PHONE:2052983000
MAIL ADDRESS:STREET 1:PO BOX 385014CITY:BIRMINGHAMSTATE:ALZIP:35238-5014
10-K1edgar10k-2004.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year EndedDecember 31, 2004
Commission file number: 1-4033
VULCAN MATERIALS COMPANY
(Exact name of registrant as
specified in its charter)
New Jersey
(State or other jurisdiction of incorporation or organization)
63-0366371
(I.R.S. Employer Identification No.)
1200 Urban Center Drive, Birmingham, Alabama35242
(Address, including zip code, of registrant's principal executive
offices)
(205) 298-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class
Common Stock, $1 par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the
Act:None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.YesXNo
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by referenced in Part
III of this Form 10-K or any amendment to this Form 10-K.
[X]
Indicate by check mark whether registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act) YesXNo
Aggregate market value of voting stock held by non-affiliates as
of June 30, 2004:
$4,839,259,694
Number of shares of common stock, $1.00 par value, as of
February 28, 2005:
102,920,134
DOCUMENTS INCORPORATED BY REFERENCE
(1)
Portions of the registrant's Annual Report to Shareholders for the year ended December 31, 2004, are incorporated by reference into Parts I, II and IV of this Annual Report on Form 10-K.
(2)
Portions of the registrant's annual proxy statement for the annual meeting of its shareholders to be held on May 13, 2005, are incorporated by reference into Part III of this Annual Report on Form 10-K.
VULCAN MATERIALS COMPANY
Annual Report On Form 10-K
Fiscal Year Ended December 31, 2004
CONTENTS
Part
Item
Page
I
1
2
3
4
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
2
8
11
13
II
5
6
7
7A
8
9
9A
9B
Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure
Controls and Procedures
Other Information
14
15
16
16
16
16
16
17
III
10
11
12
13
14
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
17
17
17
17
18
IV
15
Exhibits and Financial Statement Schedules
18
--
Signatures
22
PART I
Item 1.Business
Vulcan Materials Company, a New Jersey corporation incorporated in
1956, and its subsidiaries ("the Company," "Vulcan," "we" or "our")
are principally engaged in the production, distribution and sale of
construction materials ("Construction Materials"). Vulcan is the
nation's largest producer of construction aggregates, a major
producer of asphalt and ready-mixed concrete.
Announced Divestiture of Chemicals Business
On October 11, 2004, Vulcan Materials Company ("Vulcan")
entered into an Asset Purchase Agreement (the "Asset Purchase
Agreement") among Vulcan, Vulcan Chloralkali, LLC (the "Joint
Venture"), a Delaware limited liability company 51% owned by
Vulcan, and Basic Chemicals Company, LLC ("Basic Chemicals"), a
wholly owned subsidiary of Occidental Chemical Corporation
("Occidental Chemical"). The obligations of Basic Chemicals to
Vulcan under the Asset Purchase Agreement are supported by a
guarantee agreement delivered to Vulcan by Occidental Chemical.
Except with respect to the Asset Purchase Agreement, there are no
material relationships between Vulcan and its affiliates (including
the Joint Venture), on the one hand, and Basic and Occidental
Chemical, on the other hand.
The Asset Purchase Agreement provides for the sale of the assets
comprising Vulcan's chemicals business, which consist primarily of
chloralkali plants in Wichita, Kansas, Geismar, Louisiana and Port
Edwards, Wisconsin, as well as the assets of the Joint Venture
located in Geismar, Louisiana (the "Chemicals Business"). As
consideration for the sale of the Chemicals Business, Basic
Chemicals
-
will make an initial cash payment to Vulcan at closing;
-
will assume certain liabilities relating to the Chemicals Business, including the obligation to monitor and remediate historical and future releases of hazardous materials at or from the three plant sites; and
-
may also be required to make contingent future payments to Vulcan under two separate earn-out structures.
Vulcan will retain certain other liabilities of the Chemicals
Business not being assumed by Basic Chemicals.
Subject to adjustments for working capital charges, the initial
asset sale price is expected to result in net cash receipts of
approximately $155 million. This amount is after taxes, transaction
costs and the cost of acquiring the minority partner's 49% share of
the Chloralkali joint venture, which is dependent upon and will
occur concurrently with the closing of the sale. In addition to the
cash sale price, we will also be entitled to receive cash receipts
under two separate earn-outs, subject to certain conditions. The
first earn-out is based on ECU (electrochemical unit) and natural
gas prices during the five-year period following the closing. This
earn-out is capped at $150 million and will be accounted for as a
derivative instrument. Future estimates of this derivative's fair
value could vary materially from period to period. Proceeds under
the second earn-out will be determined based primarily on the
performance of the hydrochlorocarbon product HCC-240fa (commonly
referred to as 5CP) from the closing of the transaction through
2012. Under this earn-out provision, cash plant margin for 5CP in
excess of an agreed-upon threshold, and after certain capital
expenditures, will be shared equally with the purchaser.
Closing of the transaction, which is currently anticipated to occur
during the first half of 2005, is subject to customary regulatory
and other closing conditions. The total cash costs to be incurred
in connection with the transaction are estimated to be
approximately $0.02 per diluted share, and consist primarily of
transaction fees. We performed an impairment test of the related
long-lived assets as of December 31, 2004. As of the December 31,
2004 measurement date, the test indicated no impairment of the
Chemicals business assets. We will continue to assess the Chemicals
business assets for impairment on a quarterly basis or as
significant new information becomes available. These future
assessments will compare the anticipated initial proceeds from the
sale of the net assets and our estimate of the probable receipts
from the earn-out provisions to the carrying value of the assets,
which could change materially in the near future. There can be no
assurance as to the future amount received from
the earn-outs, if any. For further information regarding this
transaction and its accounting treatment, see Note 2 "Discontinued
Operations, Assets Held for Sale and Liabilities of Assets Held for
Sale" to the financial statements, which is incorporated hereby by
reference.
Continuing Operations - Construction Materials
Our Construction Materials business consists of the
production, distribution and sale of construction aggregates and
other construction materials and related services. Construction
aggregates include crushed stone, sand and gravel, rock asphalt and
recrushed concrete. Aggregates are employed in virtually all types
of construction, including highway construction and maintenance,
and in the production of asphaltic and portland cement concrete
mixes. Aggregates also are widely used as railroad track ballast.
Construction aggregates constituted approximately 73% of the dollar
volume of Construction Materials' 2004 net sales, as compared to
72% in 2003 and 71% in 2002. The remaining sales in the
Construction Materials business result primarily from other
products and services including asphalt mix and related products,
ready-mixed concrete, trucking services, and water transportation
services.
Each type of aggregate is sold in competition with producers of
other types of aggregates, as well as the same type of aggregate.
Because of the relatively high transportation costs inherent in the
business, competition generally is limited to the areas in
proximity to production facilities. Noteworthy exceptions are the
areas along the Mississippi, Tennessee-Tombigbee and James River
systems, and along the Gulf Coast and South Atlantic Coast, which
are served from remote quarries by barge or ocean-going vessels and
other rail-served quarries. Our Construction Materials business
serves markets in 25 states, the District of Columbia and Mexico.
Shipments of all construction aggregates totaled approximately
243.1 million tons in 2004.
In 2004, we spent approximately $34.6 million on acquisitions.
These acquisitions included three aggregates facilities in
Tennessee, one in South Carolina and one in Virginia.
At the end of 2004, we operated 210 aggregates production
facilities, including recrushed concrete plants, located in 17
states and Mexico. These aggregates facilities included 162 crushed
stone plants, 29 sand and gravel plants and 19 plants producing
other aggregates (principally recycled concrete). Reserves largely
determine the ongoing viability of an aggregates business. For a
discussion of our estimated proven and probable aggregates reserves
as of the end of 2004, see Item 2 "Properties" below. We believe
that Construction Materials' raw material reserves are sufficient
for predicted production levels for the foreseeable future. We do
not anticipate any material difficulties in either the number of
sources or availability of raw materials in the near future.
In addition to our aggregates production facilities, we operated 67
truck, rail and water distribution yards, located in select market
areas, for the sale of aggregates products. Our other facilities
included 39 asphalt plants; 23 ready-mixed concrete plants; and
another 17 operations related to service and repair and
transportation operations.
The key end-use customers for our aggregates products include heavy
construction and paving contractors; residential and commercial
building contractors; concrete products manufacturers; state,
county and municipal governments; and railroads. We serve our
customers by truck, rail and water distribution networks. During
2004, domestic and international operations served markets in 21
states, the District of Columbia and Mexico with a full line of
aggregates, and 4 additional states with railroad ballast
only.
Environmental and zoning regulations have made it increasingly
difficult for the construction aggregates industry to expand
existing quarries or to develop new quarries in some markets.
Although we cannot predict what governmental policies will be
adopted in the future regarding environmental controls which affect
the construction materials industry, we believe that future
environmental control costs will not have a materially adverse
effect upon our business. Furthermore, any future land use
restrictions in some markets could make zoning and permitting more
difficult. Any such restrictions, while potentially curtailing
expansion or acquisitions in certain areas, could also enhance the
value of our reserves at existing locations by restraining the
entry or continuing operations of competitors in those areas.
Construction Materials strives to maintain a sufficient level of
inventory of its aggregates to meet delivery requirements of its
customers. The Construction Materials business generally provides
for standard payment terms, similar to those customary for the
construction aggregates industry, of payment within 30 days of
being invoiced.
Discontinued Operations - Chemicals
As discussed above, we have entered into an agreement to divest our
Chemicals business. See page 2 of this report. In 2004, we operated
under the Vulcan Chemicals name, and managed our line of
chloralkali products and related businesses.
The Chemicals business delivers its products upon receipt of orders
or requests from customers. On occasion, when necessary to conform
to regional industry practices, we have sold product under various
payment terms.
Following is a summary of the principal products produced by Vulcan
Chemicals, and the industry and uses for which the products are
primarily sold:
Product
Industry
Use
Chlorine
Water Management; Chemical
Processing
-potable water disinfection
- -sewage treatment
- -removal of impurities from recycled aluminum
- -raw material for production of various chlorinated
products
Caustic Soda
Food and Pharmaceutical; Energy;
Pulp and Paper
-production of soaps and detergents
- -water demineralization at electrical facilities
- -sulfur removal from gas and coal facilities
- -kraft and sulfur pulping processes
Caustic Potash (potassium hydroxide)
Food and Pharmaceutical
-production of soap and detergents
- -fertilizers
- -deicing
Hydrochloric Acid
Energy; Food and Pharmaceutical
-stimulation of oil and gas wells
- -production of fructose corn syrup
Sodium Chlorite
Water Management; Environmental
Compliance
-biocide and oxidant for water treatment
Ethylene dichloride (EDC)
Manufacturing
-manufacture of PVC
Pentachlorophenol
Wood Preservation
- wood preservative for utility poles
HCC-240fa
(5CP)
Refrigerant/Foam-Blowing
-refrigeration insulation
Potassium carbonate
Manufacturing; Chemical
Processing
-manufacture of screen glass, rubber antioxidants,
cleansers and other chemicals
Chlorinated Solvents
Fluorochemicals; Silicones; Chemical
Processing; Cleaning; Aerosols
-chemical intermediates
- -coatings and inks
- -dry cleaning
- -fluorocarbon production
- -foam production
- -drug processing
- -metal cleaning
- -paint stripping
- -silicon production
The Chloralkali business unit's sales to the chemical processing
industry serve companies that produce organic and inorganic
chemical intermediates and finished products. Products sold in this
market include hydrochloric acid, chlorine, caustic soda, caustic
potash, potassium carbonate and various chlorinated
hydrocarbons. We also sell chloroform, perchloroethylene and other
chlorinated hydrocarbons to the fluorocarbons market as feedstocks
for manufacturing refrigerants.
Vulcan Chemicals includes a joint venture with Mitsui & Co.,
Ltd., for the production and distribution of EDC, chlorine and
caustic soda. This joint venture is structured to take advantage of
our production capabilities and Mitsui's access to global EDC
markets. Mitsui, the world's leading EDC trader, purchases all of
the EDC output of our joint venture facility.
Underground reserves of salt, a basic raw material used by Vulcan
Chemicals in the production of chlorine and caustic soda, are
located near our Wichita, Kansas and Geismar, Louisiana plants. We
own or lease salt reserves at Wichita and Geismar, as discussed in
Item 2 below. We purchase salt for our Port Edwards, Wisconsin
plant from several regional supply sources. Ethylene, methanol and
vinyl chloride monomer, the major raw materials used by Vulcan
Chemicals, are purchased from several different suppliers. Sources
of salt, ethylene, methanol, vinyl chloride monomer and various
other raw material chemicals are believed to be adequate for our
operations, and we do not anticipate any material difficulty in
obtaining necessary raw materials.
In the 1990s, the production of carbon tetrachloride and methyl
chloroform for emissive uses was phased out to a large extent
because of the ozone-depleting properties of these chemicals. In
2002, we completed construction of a plant at our Geismar complex
that produces 5CP, a feedstock to make new environmentally-friendly
fluorocarbons that will replace ozone-depleting
hydrochlorofluorocarbons. Under a long-term agreement, we supply
5CP to Honeywell Fluorine Products Group for its plant which is
also located in Geismar. The resulting foam-blowing agent offers
environmental benefits over ozone-depleting compounds and it
exhibits comparable or superior insulation performance.
Financial Results
Net sales, total revenues, earnings from continuing operations,
earnings from continuing operations per common share, total assets,
long-term obligations and cash dividends declared per common share
for the five years ended December 31, 2004, are reported under Item
6 below.
Competition and Customers
All of our products are marketed under highly competitive
conditions, including competition in price, service and product
performance. There are a substantial number of competitors in both
the Construction Materials and Chemicals businesses.
We are the largest construction aggregates producer in the United
States. We estimate that the top ten producers in the nation
represent approximately a third of the total national market,
resulting in highly fragmented markets in some areas. Therefore,
depending on the market, we compete with a number of large,
national and small, local producers. Since construction aggregates
are expensive to transport relative to their value, a main
competitive factor in the construction aggregates business is
having a transportation advantage over competitors. Our strategy is
to gain a significant market presence in the metropolitan areas
that demographers expect will experience the largest absolute
growth in population in the future. We have facilities located on
waterways and rail lines which substantially increase our
geographic market reach through the availability of lower rail and
water transportation cost per unit. Construction Materials sells a
small amount of construction aggregates outside of the United
States. Nondomestic net sales by Construction Materials were
$7,580,000 in 2004, $6,884,000 in 2003 and $4,422,000 in
2002.
Vulcan Chemicals competes throughout the United States with
numerous companies, including some of the nation's largest chemical
companies, in the production and sale of our lines of chemicals. We
compete principally on the basis of quality, price and technical
support for our products and also competes for sales to customers
outside the United States, primarily in Asia, South America and
Europe. Vulcan Chemicals' net sales to foreign customers were
$41,126,000 in 2004, $30,956,000 in 2003 and $27,491,000 in
2002.
No material part of the Construction Materials or Chemicals
business of Vulcan is dependent upon one or a few customers, the
loss of which would have a materially adverse effect on Vulcan. Our
products are sold principally to private industry. Although
historically over 40% of our construction materials sales have gone
into public works projects, relatively insignificant sales are made
directly to federal, state, county or municipal
governments/agencies. Therefore, we do not believe any material
portion of our business is subject to renegotiation of profits or
termination of contracts as a result of state or federal government
elections.
Research and Development Costs
We conduct research and development activities for both of our
businesses: Construction Materials' research and development
facility is located in Birmingham, Alabama; Chemicals' research and
development laboratory is located in Wichita, Kansas. In general,
our research and development efforts are directed toward new and
more efficient uses of our Construction Materials and Chemicals
products, as well as the production or processing efficiencies for
our Chemicals products. We spent approximately $1,341,000 in 2004,
$1,440,000 in 2003 and $1,240,000 in 2002 on research and
development activities for within Construction Materials. We spent
approximately $3,774,000 in 2004, $4,636,000 in 2003 and $4,513,000
in 2002 on research and development activities with
Chemicals.
Environmental Costs and Governmental Regulation
We estimate that capital expenditures for environmental control
facilities in 2005 and 2006 will be approximately $14,575,000 and
$5,414,000, respectively, for Construction Materials, and
$6,685,000 and $2,200,000, respectively, for Chemicals, if the
divestiture of Chemicals is not completed in 2005, contrary to our
current expectations.
Certain operations of our Chemicals business are subject to the
Resource Conservation and Recovery Act ("RCRA"). Under the
corrective action requirements of RCRA, the Environmental
Protection Agency ("EPA") must identify facilities subject to
RCRA's hazardous waste permitting provisions where past practices
have caused releases of hazardous waste or constituents thereof.
The owner of any such facility is then required to conduct a
Remedial Facility Investigation ("RFI") defining the nature and
extent of any such releases. If the results of the RFI determine
that constituent concentrations from any such release exceed action
levels specified by the EPA, the facility owner is further required
to perform a Corrective Measures Study ("CMS") identifying feasible
technological alternatives for addressing these releases. Depending
upon the results reported to the EPA in the RFI and CMS, the EPA
subsequently may require a Corrective Measures Implementation
("CMI") by the facility owner, such as implementation of a cleanup
plan developed by the EPA based on the RFI and CMS.
Our Port Edwards plant has completed its required clean-up and will
not incur any RFI and CMS costs going forward. We expect to incur
RFI and CMS costs over the next several years at our Geismar and
Wichita chemical manufacturing facilities. Upon the consummation of
the sale of Chemicals, however, liability for these costs will
become the responsibility of the purchaser. For each of these two
facilities, the RFI and CMS results will determine whether the EPA
subsequently requires a CMI to address releases at the facility,
and the scope and cost of any such CMI. With respect to those RFI
and CMS costs that currently can be reasonably estimated, we have
determined that our accrued reserves are adequate to cover such
costs. The total costs that we may ultimately incur in connection
with discharging our obligations under RCRA's corrective action
requirements have been estimated and accrued based on information
currently available to us; however, there is no assurance that the
actual costs, when incurred, will not exceed our current
expectations.
Our Construction Materials operations are subject to federal, state
and local laws and regulations relating to the environment and to
health and safety, including noise, water discharge, air quality,
dust control, zoning and permitting. Construction Materials
operations are also subject to applicable state and federal mining
regulations. In 1997, the Environmental Protection Agency ("EPA")
promulgated changes to the National Ambient Air Quality Standards.
These changes included modifying the existing PM10 standards, and
introduced a new fine particulate PM2.5 standard (particles smaller
than 2.5 microns in diameter). These revised standards will
eventually affect many areas of the country by requiring a
re-evaluation of whether the areas are in "attainment" with the
new
standards. However, testing jointly conducted by our leading
industry trade association (the National Stone, Sand and Gravel
Association) and EPA has indicated that crushed stone, sand and
gravel operations are not major sources of fine particulate (PM2.5)
emissions. As such, we do not currently believe that the costs
associated with compliance with the new standards will have a
material adverse effect on our operations.
Vulcan is frequently required by state or local regulations or
contractual obligations to reclaim its former mining sites. These
reclamation liabilities are recorded in our financial statements as
a liability at the time the obligation arises. The fair value of
such obligations is capitalized and depreciated over the useful
life of the owned or leased mining site. To determine the fair
value, we estimate the cost of a third party performing the
reclamation, adjusted for inflation and risk. All reclamation
obligations are reviewed at least annually. See Notes 1 and 17 to
the Consolidated Financial Statements on pages 38 and 53-54,
respectively, of the 2004 Annual Report to Shareholders. Reclaimed
quarries often have a future use in commercial or residential
development or as reservoirs or landfills. No potential future cash
flows from these anticipated future users have been used to offset
or reduce the estimated reclamation liability.
Patents and Trademarks
As of March 1, 2005, we own, have license or other rights under or
against, or have made applications for approximately 100 patents
now issued or pending in the United States and various other
countries, as well as four trademarks registered or pending
registration in the United States and other countries. These
patents, patent applications and trademarks relate to our
businesses (primarily, our Chemicals business). We believe our
patents, patent applications and trademarks are valuable both
individually and in the aggregate to our operations, but no single
patent, patent application or trademark is material to the conduct
of our business as a whole.
Other Information Regarding Vulcan
Our principal sources of energy are electricity, natural gas and
diesel fuel. We do not anticipate any material difficulty in
obtaining the required sources of energy for our operations.
In 2004, Construction Materials employed an average of 7,238
people. Vulcan Chemicals employed an average of 952 people. Our
corporate office employed an average of 220 people.
Our financial results for any individual quarter are not
necessarily indicative of results to be expected for the year, due
primarily to the effect that weather can have on the sales and
production volume of the Construction Materials business. Normally,
the highest sales and earnings of the Construction Materials
business are attained in the third quarter and the lowest are
realized in the first quarter. Cyclical swings in the construction
industry brought on by the level of interest rates and by public
spending on infrastructure can impact our earnings.
We do not consider our backlog of orders to be material to, or a
significant factor in, evaluating and understanding either of our
businesses or our business considered as a whole.
Investor Information
We make available on our website, vulcanmaterials.com, free of
charge, copies of our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5
filed by our executive officers and directors, as soon as the
filings are made publicly available by the Securities and Exchange
Commission ("SEC") on its EDGAR database. In addition to accessing
copies of our reports online, you may request a copy of our Annual
Report on Form 10-K, including financial statements, by writing to
William F. Denson, III, Secretary, Vulcan Materials Company, 1200
Urban Center Drive, Birmingham, Alabama 35242.
We have a Business Conduct Policy applicable to all employees.
Additionally, we have adopted a Code of Ethics for our Senior
Financial Officers. Copies of the Business Conduct Policy and
Senior Financial Officer Code of Ethics are available on our
website at vulcanmaterials.com. If we make any amendment to, or
waiver of, any
provision of the Senior Financial Officer Code of Ethics, we will
disclose such information on our website. Our Board of Directors
has also adopted Corporate Governance Guidelines and charters of
our Audit Committee, Compensation Committee, and Governance
Committee to meet all SEC and New York Stock Exchange regulatory
requirements. All of these documents are available on our website
or you may request a copy of such documents in writing to William
F. Denson, III, Secretary, Vulcan Materials Company, 1200 Urban
Center Drive, Birmingham, Alabama 35242.
Item 2. Properties
Construction Materials
We have 191 locations in the United States and Mexico at
which we engage in the extraction of stone, sand and gravel. The
following map shows the locations of our stone quarries and sand
and gravel facilities.
Our current estimate of approximately 10,862 million tons of zoned
and permitted aggregates reserves reflects an increase of 295
million tons from the estimate at the end of 2003. We believe that
the quantities of zoned and permitted reserves at our aggregates
facilities are sufficient to result in an average life of
approximately 48 years at present operating levels. In calculating
the average life of 48 years, we assumed an annual operating
aggregates production rate of 225 million tons. See Note 1 to the
following table for a description of our method employed for
estimating the life of reserves. This table presents, by regional
division, the estimated aggregates reserve life and the percentage
of aggregates reserves by rock type.
Percentage Aggregates Reserves by Rock Type
Estimated
Years of Life (1)
Limestone
Granite
Sand & Gravel
Other (2)
By Regional Division:
Mideast
60
7.0%
39.3%
1.2%
52.5%
Midsouth
73
98.7%
-
1.3%
-
Midwest
44
98.5%
-
1.5%
-
Southeast
49
8.2%
91.8%
-
-
Southern and Gulf Coast
44
98.5%
-
0.8%
0.7%
Southwest
36
91.2%
-
-
8.8%
Western
21
-
-
85.8%
14.2%
Total
48
51.8%
27.4%
5.8%
15.0%
________________________________
(1)
Estimated years of life of aggregates reserves are based on the average annual rate of production of each regional division for the most recent three-year period, except that if reserves are acquired or if production has been reactivated during that period, the estimated years of life are based on the annual rate of production from the date of such acquisition or reactivation. Revisions may be necessitated by such occurrences as changes in zoning laws governing facility properties, changes in aggregates specifications required by major customers and passage of government regulations applicable to aggregates operations. Estimates also are revised when and if additional geological evidence indicates that a revision is necessary. For 2004, the total three-year average annual rate of production was 225 million tons based on the annual rate of production, as follows: 2004 - 235 million tons, 2003 - 223 million tons and 2002 - 216 million tons.
(2)
Other: amphibolite, argillite, basalt, diabase, diorite, gabbro, gneiss, latite, quartzite, rock asphalt, sandstone, and traprock.
The foregoing estimates of reserves are of recoverable stone,
sand and gravel of suitable quality for economic extraction, based
on drilling and studies by our geologists and engineers,
recognizing reasonable economic and operating restraints as to
maximum depth of overburden and stone excavation.
Of the 191 permanent reserve-supplied aggregates production
facilities which we operate, 71 (representing 46% of total
reserves) are located on owned land, 34 (representing 22% of total
reserves) are on land owned in part and leased in part, and 86
(representing 32% of total reserves) are on leased land. While some
of our leases run until reserves at the leased sites are exhausted,
generally our leases have definite expiration dates, which range
from 2005 to 2104. Most of our leases have options to extend them
well beyond their current terms by renewals at our
discretion.
Due to transportation costs, the market areas for most aggregates
facilities in the construction aggregates industry are limited,
often consisting of a single metropolitan area or one or more
counties or portions thereof when transportation is by truck only.
The following table provides specific information regarding our 10
largest active aggregates facilities determined on the basis of the
quantity of aggregates reserves. None of the listed aggregates
facilities contribute more than 5% to the net sales of our
Construction Materials business.
Location of Quarry
(nearest major metropolitan area)
Product
Average Annual
Production Rate
(millions of tons)
Estimated
Years of Life
At Average
Rate of Production (1)
Nature of
Interest
Lease
Expiration
Date, if
Applicable
Distribution Method
Playa Del Carmen, Mexico
Limestone
7.3
97.0
Owned
-
ocean-going vessels, truck
McCook (Chicago), Illinois
Limestone
7.1
90.8
Owned
-
truck
Grayson (Atlanta), Georgia
Granite
1.8
Over100
Owned
-
truck
Rockingham (Charlotte), North Carolina
Granite
3.7
77.1
28% Leased
72% Owned
(2)
truck, rail
Gray Court (Greenville), South Carolina
Granite
0.9
Over 100
Owned
-
truck
Grand Rivers (Paducah), Kentucky
Limestone
7.5
26.1
Leased
(3)
truck, rail, barge
Hanover (Harrisburg), Pennsylvania
Limestone
3.5
56
Owned
-
truck, rail
Jack (Richmond), Virginia
Granite
0.8
Over 100
39% Leased
61% Owned
(4)
truck, rail, barge
Calera (Birmingham), Alabama
Limestone
3.2
52.4
Owned
-
truck, rail
Gold Hill (Charlotte), North Carolina
Argillite
1.1
Over 100
71% Leased
29% Owned
(5)
truck, conveyor
________________________________
(1)
Estimated years of life of aggregates reserves are based on the average annual rate of production of the facility for the most recent three-year period, except that if reserves are acquired or if production has been reactivated during that period, the estimated years of life are based on the annual rate of production from the date of such acquisition or reactivation. Revisions may be necessitated by such occurrences as changes in zoning laws governing facility properties, changes in aggregates specifications required by major customers and passage of government regulations applicable to aggregates operations. Estimates also are revised when and if additional geological evidence indicates that a revision is necessary.
(2)
Leases expire as follows: 29% in 2025, 54% in 2027 and 17% in 2036.
(3)
Lease does not expire until reserves are exhausted. Surface rights at the Paducah, Kentucky facility are owned.
(4)
Lease renewable by us through 2059.
(5)
Lease expires as follows: 89% in 2058 and 11% in 2044.
Chemicals
Vulcan Chemicals operates production facilities in Wichita, Kansas,
Geismar, Louisiana, and Port Edwards, Wisconsin. With a few
exceptions, the Geismar and Wichita facilities produce the full
line of products manufactured by Vulcan Chemicals. The Port Edwards
plant produces chlorine, caustic soda, hydrochloric acid, caustic
potash and potassium carbonate.
All of the facilities at Wichita are located on a 2,271-acre tract
of land that we own. We hold mineral rights for salt, which is used
in production at this facility, under two leases that are
automatically renewable from year-to-year unless terminated by us
and under several other leases that may be kept in effect so long
as production from the underlying properties is continued. In
addition, we own 160 acres of salt reserves and 108 acres of water
reserves. We maintain an electric power cogeneration facility at
the Wichita plant site which is capable of generating approximately
one-third of the plant's electricity and two-thirds of the plant's
process steam requirements. We have placed this cogeneration
facility in reserve and are purchasing all of our requirements for
electric power from a local utility at favorable rates pursuant to
a long-term agreement. Through a separate
agreement with this utility, we operate our cogeneration unit upon
the request of the utility at various times during the summer peak
electricity demand period, selling the cogenerated electricity to
the utility at profitable rates.
The facilities at Geismar are located on a 2,185-acre tract of land
that we own. We hold mineral rights for salt, which is used in the
production process, under a lease which may be extended, at our
option, through January 2037. Included in the facilities at the
Geismar plant are the operations associated with the joint venture
with Mitsui & Co., Ltd. Long-term contracts with the regional
utility are in place to supply the electrical power requirements of
the Geismar facility, including the joint venture plant.
The plant facilities at Port Edwards are located on a 34-acre tract
of land, on which we own the surface rights. Currently, we purchase
our salt and electrical power requirements for the Port Edwards
facility from regional supply sources.
Our Chemicals production facilities are designed to permit a high
degree of flexibility as to raw material feedstocks, product mix
and product ratios; therefore, actual plant production capacities
vary according to these factors.
Other Properties
The headquarters for the corporate staff, the staffs for
Construction Materials, including the Southern and Gulf Coast
Division, and Chemicals are located in an office complex in
Birmingham, Alabama. The office space is leased through December
31, 2013 and consists of approximately 189,000 square feet. The
annual rental for the current term and the five-year renewal period
are $3.2 million and $3.4 million, respectively.
Item 3.Legal Proceedings
In the course of our Construction Materials and Chemicals
operations, we are subject to occasional governmental proceedings
and orders pertaining to occupational safety and health or to
protection of the environment, such as proceedings or orders
relating to noise abatement, air emissions or water discharges. As
part of our continuing program of stewardship in safety, health and
environmental matters, we have been able to resolve such
proceedings and to comply with such orders without any materially
adverse effects on our business.
We are also a defendant in various lawsuits in the ordinary course
of business. It is not possible to determine with precision the
probable outcome of, or the amount of liability, if any, under
these lawsuits, especially where the cases involve possible jury
trials with as yet undetermined jury panels. In our opinion, the
disposition of these lawsuits will not adversely affect our
consolidated financial position, results of operation and cash
flows to a material extent. In addition to those lawsuits in which
we are involved in the ordinary course of business, certain other
legal proceedings are more specifically described below. It is our
opinion that the disposition of these described lawsuits will not
adversely affect our consolidated financial position, results of
operation and cash flows to a material extent.
We are involved in an action filed in November 1998 by the City of
Modesto in state court in California. This claim arose from
allegations of perchloroethylene contamination of municipal water
wells in the City of Modesto and alleges certain claims against us
and other chemical and equipment manufacturers, distributors and
dry cleaners. The trial of this case is currently underway,
however, it is not likely that jury selection will begin before
late March or April 2005. We have retained counsel in this case and
intend to defend this action vigorously.
Other perchloroethylene cases involve claims of IBM employees who
allege personal injury as a result of workplace exposure at IBM
semiconductor manufacturing plants. We are named as a defendant,
along with IBM and other chemical manufacturers, in approximately
17 lawsuits involving more than 230 plaintiffs in state court in
Westchester County, New York. We are engaged in discussions with
plaintiffs' counsel to resolve this matter. No plaintiff's claim in
which we are a named defendant is currently set for trial. We have
retained counsel in all of these cases and plan to defend the
claims vigorously, absent resolution of these claims through
discussions with plaintiffs' counsel.
We have been named as a defendant in multiple lawsuits filed in
2001 and 2002 in state court and federal district court in
Louisiana. The lawsuits claim damages for various personal injuries
allegedly resulting from releases of chemicals at our Geismar,
Louisiana plant in 2001. As of this filing, 87 lawsuits involving
approximately 3,015 named plaintiffs have been filed. A trial for
the issues of causation and damages for 10 plaintiffs related to
the April 2001 release was held in July 2004. Five of these
plaintiffs were dismissed during the trial. A jury awarded the
remaining five plaintiffs an aggregate award of $201,000.
Additionally, on October 5, 2004, the judge granted our motion for
summary judgment dismissing approximately 2,000 to 2,200
plaintiffs. The next jury trial is scheduled for May 2, 2005 in
Ascension Parish, Louisiana.
In September 2001, we were named a defendant in a suit brought by
the Illinois Department of Transportation ("IDOT"), in the Circuit
Court of Cook County, Chancery Division, Illinois, alleging damage
to a 0.9 mile section of Joliet Road that bisects our McCook Quarry
in McCook, Illinois, a Chicago suburb. IDOT seeks damages to
"repair, restore, and maintain" the road or, in the alternative,
judgment for the cost to "improve and maintain other roadways to
accommodate" vehicles that previously used the road. The complaint
also requests that the court enjoin any McCook Quarry operations
that will further damage the road. Discovery is ongoing.
We have been named as one of numerous defendants in 225 lawsuits in
Mississippi and Texas by 11,264 plaintiffs, five cases in
California with five plaintiffs, two cases in Louisiana with two
plaintiffs, one case in Kentucky with 454 plaintiffs, two cases in
West Virginia with 23 plaintiffs, three cases in Florida with three
plaintiffs and one case in Ohio with one plaintiff. The plaintiffs
in the cases in Mississippi and Texas allege personal injuries
arising from silicosis and failure to adequately warn, related to
exposure to and use of industrial sand used for abrasive blasting.
We produced and marketed industrial sand from 1988 to 1994,
primarily in Texas. In the cases in California, Kentucky, West
Virginia, Ohio and Florida, the plaintiffs allege personal injuries
relating to exposure to silica, and the cases in Louisiana relate
to liability as a premises owner on which sand blasting occurred.
The first of these lawsuits was filed in July 1993, and the most
recent case was served in January 2005. Most of the actions are in
state court in the state in which the actions were filed; however,
a number have been removed to Federal district court. We are
seeking dismissal from the cases in Mississippi, Kentucky,
California, West Virginia, Ohio and Florida because there was no
exposure by the plaintiffs to Vulcan's product in those
states.
In November 2002, we received a Directive and Notice to Insurers
Nos. 2002-9 and 2002-10 (collectively, the "Directives") from the
New Jersey Department of Environmental Protection ("NJDEP"). The
NJDEP asserts in its Directives that the respondents named therein,
including us, are strictly and jointly and severally liable under
state law (specifically, the New Jersey Spill Compensation and
Control Act, N.J.S.A 58:10-23.11) with respect to certain
environmental conditions that allegedly affect two former asphalt
plant sites. These two sites are referred to in the Directives as,
respectively, the Roseland site, located in Essex County, New
Jersey, and the Rockaway site, located in Morris County, New
Jersey, (collectively, the "Sites"). On November 4, 2003, we
executed NJDEP Administrative Consent Orders ("ACOs") concerning
the two Sites. We agreed under these ACOs to complete the
investigation and remediation of each of the Sites, and thereby
resolve our liabilities, if any, in regard to the claims asserted
by the NJDEP in its Directives. Furthermore, we intend to seek
contribution from the former owners and operators of the Sites for
all costs we have incurred or will incur under the ACOs. We never
operated either of the Sites. Prior to the sale to the current
owner during the mid-1990's, the Sites were owned and operated by
Tarmac Minerals, Inc. We acquired the stock of Tarmac Minerals,
Inc. in October 2000 as part of the Tarmac acquisition.
Note 12, Other Commitments and Contingencies on pages 51 and 52 of
our 2004 Annual Report to Shareholders is hereby incorporated by
reference.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
Certain of the matters and statements made herein or incorporated
by reference into this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. All such statements are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements reflect our intent,
belief or current expectation. Often, forward-
looking statements can be identified by the use of words such as
"anticipate," "may," "believe," "estimate," "project," "expect,"
"intend" and words of similar import. In addition to the statements
included in this Annual Report on Form 10-K, we may from time to
time make other oral or written forward-looking statements.
Forward-looking statements are not guarantees of future
performance, and actual results could differ materially from those
indicated by the forward-looking statements. All forward-looking
statements involve certain assumptions, risks and uncertainties
that could cause actual results to differ materially from those
included in or contemplated by the statements. These assumptions,
risks and uncertainties include, but are not limited to, general
business conditions; the timing and amount of federal, state and
local funding for infrastructure; the completion of the sale of our
Chemicals business unit; the timing and amount, if any, of the
payments to be received under two earn-outs contained in the
agreement for divestiture of our Chemicals business; the highly
competitive nature of each of the industries in which we operate;
pricing of our products; weather and other natural phenomena;
energy costs; the cost of hydrocarbon-based raw materials;
increasing healthcare costs; the risks set forth in Item 3 "Legal
Proceedings," Note 12 "Other Commitments and Contingencies," Item 7
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," Item 7A "Quantitative and Qualitative
Disclosures About Market Risk"; and other risks and uncertainties.
All such forward-looking statements may be affected by inaccurate
assumptions or by known or unknown risks and uncertainties, and
therefore the statements may turn out to be wrong. Consequently, we
cannot guarantee the accuracy of the forward-looking statements.
Actual future results may vary materially from currently
anticipated results.
All forward-looking statements are made as of the date of filing or
publication. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information,
future events or otherwise. Investors are advised, however, to
consult any of our future disclosures in filings made with the
Securities and Exchange Commission or in any of our press
releases.
Item 4.Submission of Matters to a Vote of Security
Holders
No matter was submitted to our security holders through the
solicitation of proxies or otherwise during the fourth quarter of
2004.
Executive Officers of Registrant
The names, positions and ages, as of March 1, 2005, of our
executive officers are as follows:
Name
Position
Age
Donald M. James
Chairman and Chief Executive Officer
56
Guy M. Badgett, III
Senior Vice President-Construction Materials Group
56
William F. Denson, III
Senior Vice President, General Counsel and Secretary
61
James W. Smack
Senior Vice President-Construction Materials Group
61
Mark E. Tomkins
Senior Vice President, Chief Financial Officer and
Treasurer
49
Robert A. Wason IV
Senior Vice President, Corporate Development
53
Ejaz A. Khan
Vice President, Controller and Chief Information
Officer
47
Ronald G. McAbee
President, Western Division
57
Brad C. Rosenwald
President, Chemicals Division
52
The principal occupations of the executive officers during the past
five years are set forth below:
Donald M. James, was named Chief Executive Officer in February
1997, and was elected Chairman of the Board of Directors in May
1997.
Guy M. Badgett, III, was elected Senior Vice President,
Construction Materials Group in February 1999.
William F. Denson, III, was elected Senior Vice President and
General Counsel in May 1999. Prior to that date he served as Senior
Vice President-Law. He has also served as Secretary since April
1981.
James W. Smack was elected Senior Vice President-Construction
Materials Group in June 2004. Prior to that date he served as
President of the Company's Western Division.
Mark E. Tomkins was elected Senior Vice President and Chief
Financial Officer in January 2001. He was also appointed Treasurer
in May 2001. From August 1998 to January 2001 he served as Senior
Vice President and Chief Financial Officer of Great Lakes Chemical
Company where he was primarily responsible for finance, investor
relations, strategic planning and information technology.
Robert A. Wason IV was elected Senior Vice President, Corporate
Development in December 1998.
Ejaz A. Khan was elected Vice President and Controller in February
1999. Prior to that he served as Controller. He was appointed Chief
Information Officer in February 2000.
Ronald G. McAbee was appointed President, Western Division in June
2004. Prior to that date he served as President, Mideast
Division.
Brad C. Rosenwald was appointed President of the Chloralkali
Business Unit (now President, Chemicals Division) in January 2002.
Prior to that he served as Vice President, Manufacturing of the
Chloralkali Business Unit.
PART II
Item 5.Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Our Common Stock is traded on the New York Stock Exchange (ticker
symbol VMC). As of February 28, 2005, the number of shareholders of
record was 3,501. The prices in the following table represent the
high and low sales prices for our Common Stock as reported on the
New York Stock Exchange and the quarterly dividends declared by our
Board of Directors in 2003 and 2004.
Common Stock Prices
Dividends Declared
2004
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$50.53
48.78
51.18
55.53
Low
$45.65
41.94
44.30
46.85
$.26
..26
..26
..26
2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$38.75
39.95
42.99
48.60
Low
$28.75
29.90
36.20
39.76
$.245
..245
..245
..245
Our policy is to pay out a reasonable share of net cash provided by
operating activities as dividends, consistent on average with the
payout record of past years, as well as with the goal of
maintaining debt ratios within prudent and generally acceptable
limits. The future payment of dividends, however, will be within
the discretion of our Board of Directors and depends on our
profitability, capital requirements, financial condition, growth,
business opportunities and other factors which our Board of
Directors may deem relevant. We are not a party to any contracts or
agreements that currently materially limit, or are likely to limit
in the future, the ability of the Company to pay dividends.
The information under the heading "Equity Compensation Plan
Information" included in our 2005 Proxy Statement is hereby
incorporated by reference. During the fourth quarter of 2004,
neither Vulcan nor its affiliated purchasers purchased any Vulcan
shares. Also, during the fourth quarter, Vulcan did not sale any
unregistered securities.
Item 6.Selected Financial Data
The selected statement of earnings, per share data and balance
sheet data for each of the 5 years ended December 31, 2004, set
forth below have been derived from our audited consolidated
financial statements. The following data should be read in
conjunction with our consolidated financial statements and notes to
consolidated financial statements on pages 32 through 35 and 36
through 54, respectively, of our 2004 Annual Report to
Shareholders, which under Item 8 hereof are incorporated herein by
reference.
Years ended December 31,
2004
2003
2002
2001
2000
(Amounts in millions, except per share data)
Net sales
Total revenues
$2,213.2
$2,454.3
$2,086.9
$2,309.6
$1,980. 6
$2,175.8
$2,113.6
$2,331.9
$1,885.9
$2,083.8
Earnings from continuing operations before
cumulative effect of accounting changes
Earnings (loss) on discontinued operations,
net of tax(1)
Cumulative effect of accounting changes(2)
Net earnings
$261.2
26.2
- -
$287.4
$237.5
(23.7)
(18.8)
$195.0
$233.2
(42.8)
(20.5)
$169.9
$231.5
(8.8)
- -
$222.7
$224.1
(4.2)
- -
$219.9
Basic - per share:
Earnings from continuing operations before
cumulative effect of accounting changes
Discontinued operations
Cumulative effect of accounting changes
Net earnings
$2.55
0.26
- -
$2.81
$2.33
(0.23)
(0.19)
$1.91
$2.29
(0.42)
(0.20)
$1.67
$2.28
(0.08)
- -
$2.20
$2.22
(0.04)
- -
$2.18
Diluted - per share:
Earnings from continuing operations before
cumulative effect of accounting changes
Discontinued operations
Cumulative effect of accounting changes
Net earnings
$2.52
0.25
- -
$2.77
$2.31
(0.23)
(0.18)
$1.90
$2.28
(0.42)
(0.20)
$1.66
$2.26
(0.09)
- -
$2.17
$2.20
(0.04)
- -
$2.16
Pro forma assuming FAS 143 applied retroactively:
Net earnings
Net earnings per share, basic
Net earnings per share, diluted
$168.4
$1.66
$1.64
$222.2
$2.19
$2.17
$217.5
$2.15
$2.13
Total assets
Long-term obligations
Shareholders' equity
Cash dividends declared per share
$3,665.1
$604.5
$2,014.0
$1.04
$3,636.9
$607.7
$1,802.8
$0.98
$3,448.2
$857.8
$1,697.0
$0.94
$3,413.3
$906.3
$1,604.3
$0.90
$3,250.4
$685.4
$1,471.5
$0.84
________________________________
(1)
Discontinued operations includes the results from operations from our planned divestiture of the Chloralkali business unit and the 2003 divestiture of the Performance Chemicals business unit.
(2)
The 2003 accounting change relates to our adoption of FAS 143,
"Asset Retirement Obligations." The $18.8 million net-of-tax
cumulative effect adjustment represents the impact of our recording
asset retirement obligations, at estimated fair value, for which we
have legal obligations for land reclamation. The 2002 accounting
change relates to our adoption of FAS 142, "Goodwill and Other
Intangible Assets." The $20.5 million net-of-tax transition
adjustment represents the full impairment of goodwill in the
Performance Chemicals reporting unit.
For additional information regarding accounting changes, see Note
17 to the Consolidated Financial Statements.
Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 19 through 29 and "Financial
Terminology (Unaudited)" on page 55 of our 2004 Annual Report to
Shareholders are incorporated herein by reference.
Item 7A.Quantitative and Qualitative Disclosures About Market
Risk
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 25 through 26 of our 2004 Annual
Report to Shareholders is incorporated herein by reference.
Item 8.Financial Statements and Supplementary
Data
The following information relative to this item is included in our
2004 Annual Report to Shareholders on the pages shown below, which
are incorporated herein by reference:
Page
Consolidated Financial Statements
32-35
Notes to Consolidated Financial Statements
36-54
Management's Report on Internal Control over Financial Reporting
30
Reports of Independent Registered Public Accounting Firm
Internal Control over Financial Reporting
Consolidated Financial Statements
31
31
Net Sales, Total Revenues, Net Earnings and Earnings Per Share
Quarterly Financial
Data for Each of the 2 Years Ended December 31, 2004 and 2003
(Unaudited) (1)
62
________________________________
(1)
Discontinued operations includes the results from operations from our planned divestiture of the Chloralkali business unit and the 2003 divestiture of the Performance Chemicals business unit.
The following table sets forth gross profit by quarter for 2004 and
2003:
Gross Profit
2004
2003
(amounts in millions)
First quarter
$83.9
$62.9
Second quarter
163.4
160.2
Third quarter
197.2
191.3
Fourth quarter
138.2
141.3
Total
$582.7
$555.7
Item 9.Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A. Controls and Procedures
We maintain a system of controls and procedures designed to ensure
that information required to be disclosed in reports we file with
the SEC is recorded, processed, summarized and reported within the
time periods specified
by the SEC's rules and forms. These disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required
disclosure. Our Chief Executive Officer and Chief Financial
Officer, with the participation of other management officials,
evaluated the effectiveness of the design and operation of the
disclosure controls and procedures as of December 31, 2004. Based
upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures are effective. No significant changes were made to our
internal controls or other factors that could significantly affect
these controls during the fourth quarter of 2004, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
The information under the headings "Management's Report on Internal
Control over Financial Reporting," and "Reports of Independent
Registered Public Accounting Firm - Internal Control over Financial
Report and Consolidated Financial Statements" on pages 30 and 31 of
our Annual Report to Shareholders, is hereby incorporated by
reference.
Item 9B.Other Information
None.
PART III
Item 10.Directors and Executive Officers of the Registrant
On or before April 14, 2005, we will file a definitive proxy
statement with the Securities and Exchange Commission pursuant to
Regulation 14A (our "2005 Proxy Statement"). The information under
the headings "Election of Directors," "Nominees for Election to the
Board of Directors," "Directors Continuing in Office," "Board of
Directors and Committees - Audit Committee," "Code of Ethics for
Senior Financial Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" included in the 2005 Proxy Statement is
incorporated herein by reference.
Item 11.Executive Compensation
The information under the headings "Compensation of Directors,"
"Executive Compensation," "Option Grants in 2004," "Report of the
Compensation Committee," "Aggregated Option Exercises in 2004 and
2004 Option Values," "Equity Compensation Plans," "Shareholder
Return Performance Presentation," "Retirement Income Plan," and
"Change of Control Employment Agreements" included in our 2005
Proxy Statement is incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The information under the headings "Stock Ownership of Certain
Beneficial Owners" and "Stock Ownership of Management" and the
"Equity Compensation Plans" included in our 2005 Proxy Statement is
incorporated herein by reference.
Item 13.Certain Relationships and Related
Transactions
None.
Item 14. Principal Accountant Fees and Services
The information required by this section is incorporated by
reference from the information in the section entitled "Principal
Auditor Fees and Services" in the 2005 Proxy Statement.
PART IV
Item 15.Exhibits and Financial Statement Schedules
(a) (1) Financial Statements
The following financial statements are included in our 2004 Annual
Report to Shareholders on the pages shown below and are
incorporated herein by reference:
Page
Consolidated Statements of Earnings
32
Consolidated Balance Sheets
33
Consolidated Statements of Cash Flows
34
Consolidated Statements of Shareholders' Equity
35
Notes to Consolidated Financial Statements
36-54
Management's Report on Internal Control over Financial Reporting
30
Reports of Independent Registered Public Accounting Firm
Internal Control over Financial Reporting
Consolidated Financial Statements
31
31
Net Sales, Total Revenues, Net Earnings and Earnings Per Share
Quarterly Financial
Data for Each of the 2 Years Ended December 31, 2004 and 2003
(Unaudited)
62
(a)(2)Financial Statement Schedules
The following financial statement schedule for the years ended
December 31, 2004, 2003 and 2002 is included in Part IV of this
report on the indicated page:
Schedule II
Valuation and Qualifying Accounts and Reserves
20
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information
is provided in the financial statements or notes thereto.
Financial statements (and summarized financial information) of 50%
or less owned entities accounted for by the equity method have been
omitted because they do not, considered individually or in the
aggregate, constitute a significant subsidiary.
(a)(3)Exhibits
The exhibits required by Item 601 of Regulation S-K, other than
Exhibit 12 which is on page 21 of this report, are either
incorporated by reference herein or accompany the copies of this
report filed with the Securities and Exchange Commission. See the
Index to Exhibits which is on pages 23-24 of this report. The
Exhibits listed in the accompanying Index to Exhibits are filed as
part of this report.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Shareholders of
Vulcan Materials Company
Birmingham, Alabama
We have audited the consolidated financial statements of Vulcan
Materials Company and its subsidiary companies (the "Company") as
of December 31, 2004, 2003 and 2002 and for each of the years then
ended, management's assessment of the effectiveness of the
Company's internal control over financial reporting as of December
31, 2004, and the effectiveness of the Company's internal control
over financial reporting as of December 31, 2004, and have issued
our reports thereon dated March 11, 2005 (which report on the
consolidated financial statements expresses an unqualified opinion
and includes an explanatory paragraph related to the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 143 and
142); such consolidated financial statements and reports are
included in your 2004 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the
consolidated financial statement schedule of the Company listed in
Item 15. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information
set forth therein.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 11, 2005
Schedule II
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 2004, 2003 and 2002
Amounts in Thousands
Column A
Column B
Column C
Column D
Column E
Column F
Description
Balance at
Beginning
of Period
Additions
Charged to
Costs and
Expenses
Additions
Charged to
Other
Accounts
Deductions
Balance at
End
of Period
2004
Accrued Environmental Costs
Asset Retirement Obligations
Doubtful Receivables
Self-Insurance Reserves
All Other (7)
$21,149
107,683
8,718
38,809
11,906
$2,456
5,375
1,815
49,720
6,400
-
$4,402
- -
- -
- -
(3)
$3,479
9,052
2,988
42,972
5,046
(1)
(4)
(5)
(6)
$20,126
108,408
7,545
45,557
13,260
2003
Accrued Environmental Costs
Accrued Reclamation Costs
Asset Retirement Obligations
Doubtful Receivables
Self-Insurance Reserves
All Other (7)
$10,842
26,000
- -
8,931
22,383
13,499
$13,151
- -
5,130
2,949
37,631
7,587
-
- -
$110,966
- -
- -
(3)
$2,844
26,000
8,413
3,162
21,205
9,180
(1)
(2)
(4)
(5)
(6)
$21,149
- -
107,683
8,718
38,809
11,906
2002
Accrued Environmental Costs
Accrued Reclamation Costs
Doubtful Receivables
Self-Insurance Reserves
All Other (7)
$13,406
26,091
6,903
19,037
15,265
$345
7,148
4,636
24,760
7,678
-
- -
- -
- -
$2,909
7,239
2,608
21,414
9,444
(1)
(5)
(6)
$10,842
26,000
8,931
22,383
13,499
(1)Expenditures on environmental remediation projects.
(2)Reversal of pre-FAS 143 reclamation liabilities; liability now
included in asset retirement obligations.
(3)Cumulative adjustment for 2003 adoption of FAS 143 plus new
asset retirement obligations
less net up/down revisions to asset retirement obligations.
(4)Expenditures related to settlements of asset retirement
obligations.
(5)Write-offs of uncollected accounts and worthless notes, less
recoveries.
(6)Expenditures on self-insurance reserves.
(7)Valuation and qualifying accounts and reserves for which
additions, deductions and balances are
individually insignificant.
Exhibit 12
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Years Ended December 31
Amounts in Thousands
2004
2003
2002
2001
2000
Fixed charges:
Interest expenses before capitalization
credits
Amortization of financing costs
One-third of rental expense
Total fixed charges
$42,260
611
16,553
$59,424
$55,345
291
15,140
$70,776
$56,601
298
16,976
$73,875
$62,456
494
18,281
$81,231
$53,394
348
16,071
$69,813
Earnings from continuing operations
before income taxes
Fixed charges
Capitalized interest credits
Amortization of capitalized interest
Earnings before income taxes as adjusted
$375,566
59,424
(1,980)
839
$433,849
$335,080
70,776
(2,116)
624
$404,364
$329,195
73,875
(2,896)
463
$400,637
$339,932
81,231
(2,708)
362
$418,817
$323,449
69,813
(1,560)
295
$391,997
Ratio of earnings to fixed charges
7.3
5.7
5.4
5.2
5.6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 14, 2005.
VULCAN MATERIALS COMPANY
By
Donald M. James
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
Donald M. James
Chairman, Chief Executive Officer
and Director
(Principal Executive Officer)
March 14, 2005
Mark E. Tomkins
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
March 14, 2005
Ejaz A. Khan
Vice President, Controller
and Chief Information Officer
(Principal Accounting Officer)
March 14, 2005
The following directors:
Philip J. Carroll, Jr.
Livio D. DeSimone
Phillip W. Farmer
H. Allen Franklin
Douglas J. McGregor
James V. Napier
Donald B. Rice
Orin R. Smith
Vincent J. Trosino
Director
Director
Director
Director
Director
Director
Director
Director
Director
By
William F. Denson, III
Attorney-in-Fact
March 14, 2005
EXHIBIT INDEX
Exhibit (3)(a)
Certificate of Incorporation (Restated 1988) as amended in 1989
and 1999 filed as Exhibit 3(a) to the Company's 1989 Form 10-K
Annual Report and Exhibit 3(i) to the Company's 1999 Form 10-K
Annual Report.1
Exhibit (3)(b)
By-laws, as restated February 2, 1990, and as last amended as
last amended May 14, 2004, filed as Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004.1
Exhibit (4)(a)
Distribution Agreement dated as of May 14, 1991, by and among
the Company, Goldman, Sachs & Co., Lehman Brothers and Salomon
Brothers Inc., filed as Exhibit 1 to the Form S-3 filed on May 2,
1991 (Registration No. 33-40284).1
Exhibit (4)(b)
Indenture dated as of May 1, 1991, by and between the Company
and First Trust of New York (as successor trustee to Morgan
Guaranty Trust Company of New York) filed as Exhibit 4 to the Form
S-3 on May 2, 1991 (Registration No. 33-40284).1
Exhibit (4)(c)
Senior Debt Indenture between the Company and The Bank of New
York as trustee, dated as of August 31, 2001 filed as Exhibit 4.1
to the Company's Registration Statement on Form S-3 filed on
September 5, 2001 (Registration No. 333-67586). 1
Exhibit (4)(d)
Subordinated Debt Indenture between the Company and The Bank of
New York as trustee, dated August 31, 2001 filed as Exhibit 4.3 to
the Company's Registration Statement on Form S-3 filed on September
5, 2001 (Registration No. 333-67586). 1
Exhibit (10)(a)
The Management Incentive Plan of the Company, as amended filed
as Exhibit 10(a) to the Company's 2002 Form 10-K Annual
Report.1,2
Exhibit (10)(b)
The Unfunded Supplemental Benefit Plan for Salaried Employees
filed as Exhibit 10(d) to the Company's 1989 Form 10-K Annual
Report.1,2
Exhibit (10)(c)
Amendment to the Unfunded Supplemental Benefit Plan for Salaried
Employees filed as Exhibit 10(c) to the Company's 2001 Form 10-K
Annual Report.1,2
Exhibit (10)(d)
The Deferred Compensation Plan for Directors Who Are Not
Employees of the Company filed as Exhibit 10(d) to the Company's
2001 Form 10-K Annual Report. 1,2
Exhibit (10)(e)
The 1996 Long-Term Incentive Plan of the Company filed as
Exhibit B to the Company's 2003 Proxy Statement.1,2
Exhibit (10)(f)
The Deferred Stock Plan for Nonemployee Directors of the Company
filed as Exhibit 10(f) to the Company's 2001 Form 10-K Annual
Report.1,2
Exhibit (10)(g)
The Restricted Stock Plan for Nonemployee Directors of the
Company, as amended and restated filed as Appendix C to the
Company's 2004 Proxy Statement.1,2
Exhibit (10)(h)
Executive Deferred Compensation Plan, as amended filed as
Exhibit 10(h) to the Company's 2002 Form 10-K Annual
Report.1,2
Exhibit (10)(i)
Change of Control Employment Agreement Form filed as Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004.1,2
Exhibit (10)(j)
Change of Control Employment Agreement Form filed as Exhibit
10(j) to the Company's 2002 Form 10-K Annual Report.1,2
Exhibit (10)(k)
Executive Incentive Plan of the Company filed as Exhibit (10)(n)
to the Company's 2000 Form 10-K Annual Report. 1,2
Exhibit (10)(l)
Supplemental Executive Retirement Agreement filed as Exhibit 10
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001. 1,2
Exhibit (10)(m)
Rights Agent Agreement dated October 19, 1998 between Vulcan
Materials Company
and The Bank of New York, as amended, filed as Exhibit 10(m) to the
Company's 2002 Form 10-K Annual Report. 1
Exhibit (10)(n)
Asset Purchase Agreement by and between Basic Chemicals Company,
LLC, Vulcan Chloralkali, LLC and Vulcan Materials Company dated
October 11, 2004, filed as Exhibit 99.1 to the Company's Current
Report on Form 8-K filed October 15, 2004. 1
Exhibit (12)
Computation of Ratio of Earnings to Fixed Charges for the five
years ended December 31, 2004 (set forth on page 21 of this
report).
Exhibit (13)
The Company's 2004 Annual Report to Shareholders, portions of
which are incorporated by reference in this Form 10-K. Those
portions of the 2004 Annual Report to Shareholders that are not
incorporated by reference shall not be deemed to be "filed" as part
of this report.
Exhibit (21)
List of the Company's subsidiaries as of December 31,
2004.
Exhibit (23)
Consent of Deloitte & Touche LLP.
Exhibit (24)
Powers of Attorney.
Exhibit (31)(a)
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act.
Exhibit (31)(b)
Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act.
Exhibit (32)(a)
Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act.
Exhibit (32)(b)
Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act.
1Incorporated by reference.
2Management contract or compensatory plan.
EX-132exh13-10k2004.htm
Management's Discussion and Analysis of Financial Condition and Results of Operations
Exhibit (13)
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Vulcan provides essential infrastructure materials required by the
U.S. economy. We are the nation's foremost producer of construction
aggregates - primarily crushed stone, sand and gravel - and a major
producer of asphalt and ready-mixed concrete.
We operate primarily in the United States and our principal product
- aggregates - is consumed in virtually all types of publicly and
privately funded construction. In 2004, aggregates accounted for
73% of net sales. From 277 aggregates production facilities and
sales yards concentrated in the southern half of the United States,
we shipped a record 243 million tons to customers in 21 states, the
District of Columbia and Mexico. Our aggregates reserves total 10.9
billion tons, sufficient to last, on average, 48 years at current
annual production rates. Additionally, we produce and sell asphalt
and ready-mixed concrete in California, Texas, Arizona and New
Mexico.
Historically, more than half our aggregates shipments have been
used in publicly funded projects. In 2004, this end use accounted
for 44% of shipments and included the construction and maintenance
of highways, roads and government buildings. The balance of our
aggregates shipments was used in housing, commercial and industrial
projects, railroad ballast and other privately funded
construction.
Funding for highway construction and maintenance comes from
federal, state and local sources, primarily motor fuel taxes with
supplements from other taxes and general fund appropriations. Most
of the federal receipts are credited to the Highway Trust Fund for
right-of-way acquisition and for engineering and construction of
major highways, including major improvements to existing highways.
States obligate these funds for qualifying projects with 80%
federal dollars and 20% state dollars up to the limits of a
six-year authorization bill and an annual budget appropriation from
the U.S. Congress. States' receipts are largely credited to state
highway trust funds, many of which are dedicated to highway
projects. These funds are used not only to match federal funds but
also to build additional roads beyond the federal funding limits.
Significant portions are transferred to counties and municipalities
to fund their local street maintenance and construction
programs.
Customers for our products include heavy construction and paving
contractors; residential and commercial building contractors;
concrete products manufacturers; state, county and municipal
governments; and railroads. Customers are served by truck, rail and
water networks from our production facilities and sales yards. Due
to the low value to weight ratio, aggregates are generally local in
nature. Truck delivery accounts for the vast majority of total
shipments.
In October 2004, we announced our intention to sell our Chemicals
business as presented in Note 2 and, accordingly, its results are
reported as discontinued operations. These assets consist primarily
of chloralkali facilities in Wichita, Kansas, Geismar, Louisiana
and Port Edwards, Wisconsin; and the facilities of our Chloralkali
joint venture located in Geismar. The related assets and
liabilities are reported as assets held for sale and liabilities of
assets held for sale.
In the discussion that follows, the results of operations for prior
years have been restated to exclude discontinued operations.
Continuing operations consist solely of Construction Materials. The
comparative analysis is based on net sales and cost of goods sold,
which exclude delivery revenues and costs, and is consistent with
the basis on which management reviews results of operations.
Results of Operations
2004 vs. 2003 / Net sales
increased 6% to $2.2 billion on record aggregates shipments and
improved pricing. Aggregates shipments increased 4% to 243 million
tons with record volumes achieved in the first, third and fourth
quarters. Strong demand was experienced across most of our markets,
with residential construction activity at high levels. Private
nonresidential construction showed some signs of modest recovery in
the second half of the year, while highway construction activity
varied by state. Pricing for aggregates increased approximately
3%.
Earnings from continuing operations before interest and income
taxes were a record $410.2 million, an increase of 7% from the
prior year. The earnings benefit from higher volumes and pricing
was partially offset by increased costs in several areas. Costs for
diesel fuel and liquid asphalt were a combined $18.7 million higher
compared to 2003. Healthcare, pension and performance-based
compensation were up a combined $17.7 million, and costs related to
improvement projects at several large plants reduced earnings by
approximately $14.7 million. In 2003, we recorded asset impairment
losses totaling $14.5 million related primarily to the write-down
to fair value of four surplus land parcels in California. We
recorded no charges of this nature in 2004.
Earnings from continuing operations before income taxes were $375.6
million, an increase of 12% from the prior year. Net interest
expense was $15.0 million lower due primarily to the retirement of
$243 million of debt in April 2004.
Earnings from continuing operations before income taxes for 2004
vs. 2003 are summarized below (in millions of dollars):
2003
$335
Higher aggregates earnings
31
Lower asphalt earnings
(8)
Lower impairment of long-lived assets
15
Lower net interest expense
15
All other*
(12)
2004
$376
* / Primarily healthcare, pension,